Union Budget 2026-27: A Deep Dive into Key Economic Initiatives
Finance Minister Nirmala Sitharaman's ninth budget speech for the fiscal year 2026-27 has outlined a comprehensive strategy aimed at bolstering India's economic trajectory. The proposals underscore a multi-faceted approach, focusing on job creation, easing export distress, and enhancing capital inflows. This budget reflects the government's commitment to sustaining growth through targeted interventions in key sectors.
Capital Flows and Investment Enhancements
In response to concerns over capital outflows, the Budget has introduced significant measures to attract foreign investment. The investment limit for entities under the Persons Resident Outside India scheme has been increased to 24% from 10% of their paid-up capital, with individual limits raised to 10% from 5%. This move is designed to allow non-residents greater participation in India's equity markets via the Portfolio Investment Scheme.
Additionally, a comprehensive review of the Foreign Exchange Management Act is proposed to create a more contemporary and user-friendly framework for foreign investors. To further incentivize global players, a tax holiday until 2047 has been announced for foreign companies providing cloud services from data centers in India. These steps aim to stabilize the rupee and counter the adverse effects of global capital strikes highlighted in the Economic Survey 2025-26.
Employment Generation and Skilling Initiatives
The budget clearly acknowledges the urgent need to create job opportunities for the burgeoning youth population entering the workforce annually. Key initiatives include training programs for caregivers, a sector poised for significant growth, and the establishment of a committee to identify services sectors that can increase India's share in global services exports to 10% by 2047.
Tourism has also received special attention, with plans to conceive skilling programs for tourist guides. The emphasis on sectors such as tourism, care services, bio-pharma, and textiles indicates a strategic push to power India's growth ambitions through the services sector. There is a strong focus on demand-linked training and sector-specific skilling to align workforce capabilities with market needs.
Continued Government Capex Push
The capital expenditure target for the next fiscal year has been set at Rs 12.22 lakh crore, marking an 11.5% increase from the revised estimate of Rs 10.96 lakh crore for the current fiscal. This continuation of the government's public investment ramp-up post-pandemic underscores its role in driving infrastructure development.
Notably, seven more high-speed rail corridors are proposed as "growth connectors" across the country, with the Railways and road transport sectors accounting for over 50% of the Centre's total capital expenditure last fiscal. This enhanced capex aims to bolster India's infrastructure and stimulate economic activity.
Industrial Push and MSME Support
Amid volatile global dynamics and private sector reluctance to invest, the budget seeks to enhance productivity and competitiveness in manufacturing. A scheme to revive 200 legacy industrial clusters through infrastructure and technology upgradation has been introduced to improve cost competitiveness and efficiency.
For MSMEs, a three-pronged approach includes a Rs 10,000-crore SME growth fund for equity support and a top-up of Rs 2,000 crore to the Self-Reliant India fund. Additionally, initiatives such as setting up rare-earth corridors in states like Andhra Pradesh and Orissa, and exemptions on basic custom duty for critical minerals processing equipment, aim to boost sectors like nuclear power generation and AI-focused data centers.
Export Competitiveness and Fiscal Measures
To address challenges posed by US tariffs and multiple Free Trade Agreements, the budget proposes a one-time measure allowing SEZ units to sell to the Domestic Tariff Area at concessional duty rates. This aims to curb job losses and enhance export competitiveness, particularly for labor-intensive sectors like textiles and leather.
Custom duty cuts for inputs and capital support for modernizing machinery in the textile sector are also part of the strategy to mitigate global trade volatility. On the fiscal front, the budget projects a reduction in the debt-to-GDP ratio to 55.6% in 2026-27 from 56.1% in 2025-26, with the fiscal deficit expected to fall to 4.3% of GDP. The government has accepted the 16th Finance Commission's recommendation to retain states' share in the divisible tax pool at 41%.
